The global technology landscape continues its turbulent restructuring, and Microsoft’s gaming division, Xbox, is currently at the epicenter of significant upheaval. On July 2, 2025, the company implemented widespread job cuts across its workforce, with the gaming arm facing particularly impactful reductions. Hundreds of employees were laid off, coinciding with the unexpected cancellation of several highly anticipated game projects.
These difficult decisions are part of a broader strategic adjustment at Microsoft, affecting approximately 4% of its massive global employee base, totaling around 9,100 individuals. While the company spokesperson indicated that gaming wasn’t the majority of the cuts, the impact felt across Xbox studios was substantial and far-reaching. The move underscores Microsoft’s drive to streamline operations, control costs, and reallocate resources towards areas deemed essential for future growth in a dynamic market.
Significant Impact Across Xbox Studios and Projects
The layoffs have not spared many parts of the Microsoft Gaming empire, affecting both internal development teams and recently acquired studios. Reports confirm significant workforce reductions at various key teams. These cuts are directly linked to the cancellation of several game projects that were in development.
Specific studio impacts include mobile developer King, known for “Candy Crush,” which saw around 200 employees affected, representing about 10% of its workforce, particularly at its Barcelona office. Turn 10 Studios, the creators behind the “Forza Motorsport” series, also experienced notable layoffs, impacting over 70 individuals. ZeniMax Online Studios, the team behind “The Elder Scrolls Online,” cancelled a long-in-development, unannounced MMORPG project codenamed “Blackbird,” with cuts impacting staff in European offices. Even Raven Software, a studio involved with the prolific “Call of Duty” franchise, reportedly saw layoffs.
High-Profile Game Cancellations Confirmed
Adding to the impact of the job cuts, Microsoft confirmed the cancellation of multiple projects. Among the most prominent are two titles that players had been awaiting for years. Rare’s ambitious action-adventure game, “Everwild,” which had been in development for over a decade (including its prototype phase) and reportedly rebooted in 2021, has been officially halted. Despite Xbox head Phil Spencer previously expressing optimism about its progress, sources indicated the team struggled with establishing a clear creative direction.
Furthermore, the highly anticipated revival of the “Perfect Dark” series, spearheaded by The Initiative studio, has also been cancelled. In a drastic move, the studio specifically established to develop the “Perfect Dark” reboot, The Initiative, is reportedly being closed entirely as part of these layoffs. This cancellation, corroborated by an internal email from Xbox studio head Matt Booty, signals a significant shift in Microsoft’s development priorities. Matt Booty’s email clarified that these decisions reflect “a broader effort to adjust priorities and focus resources” for future success within a changing industry. He noted, however, that over 40 projects remain under development across the Xbox portfolio.
Microsoft’s Strategic Rationale
Microsoft’s leadership has framed these difficult actions as necessary for the long-term health and strategic positioning of the company, including the gaming division. Xbox head Phil Spencer communicated to staff that the cuts were made “To position Gaming for enduring success” and to allow the company to “focus on strategic growth areas.” This involves consciously “ending or decreasing work in certain areas” and simplifying organizational structures by “removing layers of management to increase agility and effectiveness,” mirroring a pattern seen across other parts of Microsoft.
Spencer acknowledged the inherent difficulty in making such cuts at a time when the gaming division is performing strongly, citing “more players, games, and gaming hours than ever before” and a robust roadmap. However, he emphasized that current success stems from past difficult decisions and that similar “choices now for continued success in future years” are vital. The strategy, according to Spencer, is about having the “discipline to prioritize the strongest opportunities,” protecting “what is thriving,” and concentrating effort on areas with the “greatest potential” to deliver exceptional experiences for players and meet company expectations. A Microsoft spokesperson echoed this, stating the cuts are necessary “to position the company and teams for success in a dynamic marketplace.”
A Pattern of Restructuring
These July 2025 layoffs represent the fourth significant wave of job reductions to impact Microsoft’s gaming business within the last 18 months alone. Following the massive $69 billion acquisition of Activision Blizzard, the company has undergone repeated restructuring. Previous cuts included 1,900 employees across Activision Blizzard and Xbox in January 2024, studio closures (such as Arkane Austin and Tango Gameworks) leading to further job losses in May 2024, and another round affecting 650 Xbox staff in September 2024. Additional cuts targeted other Microsoft divisions like HoloLens and Azure cloud teams. This consistent pattern of layoffs has reportedly impacted employee morale across the company.
Despite these workforce reductions and project cancellations, Microsoft’s gaming segment recently reported a 5% year-over-year revenue increase in its Q3 2025 results. The timing of the cuts coincides with the end of Microsoft’s financial year and occurs shortly after the company confirmed plans for next-generation Xbox consoles and indicated a strong presence at the upcoming gamescom video game show. This suggests a strategic pivot rather than a response to immediate financial distress within the gaming unit itself, aligning with the company-wide reallocation of resources, potentially towards areas like Artificial Intelligence, as mentioned in some reports.
Support for Impacted Employees and Future Outlook
Xbox leadership stressed that the decisions are not a reflection of the capabilities or dedication of the affected employees. Phil Spencer credited the current momentum and success of the gaming division to the “years of dedicated effort” by all staff, including those whose roles were eliminated.
Microsoft’s HR department is reportedly working directly with impacted individuals to provide support. This includes comprehensive severance packages, continued healthcare coverage, and job placement resources, all aligned with local labor laws. Impacted employees are also being actively encouraged to apply for other open positions within Microsoft Gaming, with their applications receiving priority review.
The cancellation of projects like “Perfect Dark” and “Everwild,” coupled with the closure of a dedicated studio like The Initiative, raises questions about Microsoft’s approach to developing new, large-scale, first-party IP, particularly those outside established franchises like “Halo” or “Forza.” While Matt Booty confirmed many projects remain in development, the cuts signal a sharpening of focus and a potential move away from projects that lack clear direction or long development cycles, prioritizing instead what the company views as “strongest opportunities” with the “greatest potential.” This strategic refinement aims to ensure the gaming division remains competitive and profitable in the years ahead, even if it means making difficult decisions about personnel and projects today.
Frequently Asked Questions
How many employees were laid off in Microsoft’s recent cuts impacting Xbox?
Microsoft laid off hundreds of employees specifically within its Xbox gaming division as part of a larger company-wide reduction affecting approximately 9,100 individuals, or about 4% of Microsoft’s total global workforce.
Which specific Xbox games were confirmed as canceled during this restructuring?
Multiple Xbox game projects were canceled, including Rare’s long-anticipated action-adventure title “Everwild” and the revival of “Perfect Dark,” which was being developed by The Initiative. An unannounced MMORPG project from ZeniMax Online Studios, codenamed “Blackbird,” was also canceled.
Why did Microsoft make these significant layoffs and cancel game projects in its gaming division?
Microsoft leadership, including Xbox head Phil Spencer, stated these decisions are strategic moves to position the gaming division for “enduring success” by focusing on “strategic growth areas.” This involves ending work on certain projects, removing management layers to increase agility, and prioritizing opportunities deemed to have the “greatest potential” in a dynamic market.
